Online Tariffs? What the end of the e-commerce moratorium means for digital trade

In 2024, 26 years after it was first approved, the World Trade Organization (WTO) renewed its moratorium on the imposition of customs duties on electronic transmissions—seemingly for the last time. This article explores the possible consequences of the decision not to renew the moratorium beyond the current period and sheds light on its downsides.

A Brief History

The WTO first agreed to the moratorium in 1998, at a time when policy-makers were still grappling with fundamental questions about what the advent of the Internet and digital technology would bring to international trade. Conscious of their mission to liberalize trade in the interest of global economic development, WTO members agreed to temporarily refrain from imposing customs duties on “electronic transmissions,” deciding in parallel to create a work program tasked with examining the trade-related issues of e-commerce in view of making recommendations for action. This temporary moratorium has since been renewed at every biennial WTO ministerial conference, while the work program continued facilitating discussions, albeit with modest concrete outcomes.

Since its initial adoption, the renewal of the moratorium progressively became more contentious among WTO members. As the share of online global trade continued to rise, developing countries, in particular, increasingly viewed the moratorium as an obstacle to generating vital government revenue and a limitation on their own policy space. Eventually, opposition to the moratorium grew enough to make its renewal beyond 2026 untenable.

At the 11th hour of the WTO’s 13th Ministerial Conference (MC13) on March 2, 2024, ministers of the 164 WTO members found consensus on the Abu Dhabi Ministerial Declaration. Importantly, the declaration contains a final extension of the moratorium on levying customs duties on electronic transmissions until the 14th Ministerial Conference scheduled for 2026 or until March 31, 2026, whichever is earlier.

If the moratorium does, in fact, end in 2026, countries and companies must now begin to find ways to navigate a world where a range of electronic transmissions could be subject to duties.

The Economic Impact on Businesses and Consumers

The imposition of customs duties on electronic transmissions could have significant economic impacts on businesses and consumers. Figures 1 and 2, developed by the Swedish National Board of Trade, explain how this economic impact could come about. Figure 1 illustrates how a typical set of transactions involving electronic transmission across borders now takes place. Figure 2 illustrates what that series of transactions could look like if, in the absence of the moratorium, some of those electronic transmissions were subject to customs duties.

The imposition of customs duties on electronic transmissions could have significant economic impacts on businesses and consumers.

Figure 1. Scenario with the WTO e-commerce moratorium in place

Source: Swedish National Board of Trade.

While the numbers are arbitrary, Figure 2 illustrates a potential scenario of how the imposition of customs duties could lead to higher prices further down the value chain. Short of only using and developing local software, the final outputs could cost more for consumers.

Figure 2. Scenario without the WTO e-commerce moratorium

Source: Swedish National Board of Trade.

As with duties on physical products, governments would have wide licence to apply duties on some transactions in the absence of the moratorium. To avoid passing the increased costs on to customers, governments could then exempt from duties transmissions related to certain sectors of the digital economy. In short, a new system of duties and exceptions risks creating customs regimes that become barriers to transnational online trade. Some governments may encounter difficulties in introducing tailored customs regimes as they would run the risk that digital service providers simply leave their markets altogether, to the detriment of consumers.

How Might the Regulatory Landscape Look Post-Moratorium?

Without the moratorium, duties on electronic transmissions will be governed not by a single rule, but by rules contained in a patchwork of trade agreements, some with relatively large membership but some with only a handful of members, and each rule with different definitions and scopes.

The widest potential replacement rule would be the obligation set out in the Joint Statement Initiative (JSI) on E-commerce. Some 71 members laid the groundwork for this JSI at the outset of the WTO’s Ministerial Conference in 2017. The group’s initial goal was to advance discussions on e-commerce by developing common rules on topics such as data governance (i.e., the free flow of data) and to identify digital trade facilitation measures. The initiative, supported by the United States, China, and the European Union from the start, now has 91 members. Most are proponents of a moratorium, with many wanting it to become permanent.

This fact notwithstanding, finding common ground among more than 90 JSI members, including the three major actors in digital trade—China, the United States, and the European Union—was and remains an ambitious goal. Nonetheless, most e-commerce JSI members support the “stabilized text” published in July 2024, which features a moratorium on the imposition of customs duties on electronic transmissions, albeit with a 5-year review clause.

The negotiated text is unlikely to become law in the near future, considering not only that JSI members such as Brazil, Türkiye, and the United States (whose position on the agreement’s key objectives has shifted markedly) have not signed on to this “stabilized text” but also that plurilateral agreements in general face strong opposition from some members.

In the absence of an agreement in the context of the JSI, the regulatory landscape that will remain after the moratorium ends is a network of disjointed regional trade accords containing slightly different norms. A study by the University of Lucerne shows that 105 regional trade agreements have an e-commerce chapter. All but five of these include provisions on the non-imposition of customs duties on electronic transmissions (NICDET).

The absence of the moratorium will, therefore, result in a patchwork of different customs regimes across the world, where some countries will benefit from existing NICDET frameworks while others will scramble to negotiate bilateral or regional agreements for cross-border data, goods, and services flows. This patchwork has real economic implications.

The Internet provides many of the goods and services that we take for granted in our daily lives, but could suddenly be hidden behind paywalls or be inaccessible altogether.

The global absence of tariffs on electronic transmissions has been vital in assuring the Internet has stayed open and globalized since its invention. The Internet provides many of the goods and services that we take for granted in our daily lives, but could suddenly be hidden behind paywalls or be inaccessible altogether. Take, for example, countries in which Facebook is almost equivalent to the Internet and where a lot of small-volume trade is being conducted. If Facebook were to introduce a price on the use of its platform or withdraw its services from a country in reaction to customs duties, customers would be the ones paying the price. Due to the definitional vacuum of electronic transmissions, there may be other effects and unintended consequences caused by the end of the moratorium that we cannot foresee.

Ending the moratorium may not be the sole driver of changes that the Internet will face. However, it certainly opens the door further to the division of the world into the “three digital kingdoms” supported by a network of bilateral and regional trade agreements that regulate digital trade. The difficult negotiations of the e-commerce JSI on critical issues such as data flows and the less-than-fruitful discussions on defining electronic transmissions in the WTO Work Program for more than 20 years serve as an indication for this outcome.

Concerns With a Comprehensive Moratorium: Policy space

WTO members have argued that certain WTO regulations have impeded their policy space. As such, the arguments of Indonesia to protect its policy space for the development of a “viable domestic digital industrialization,” or the United States Trade Representative’s statement on data governance in the e-commerce JSI, are not new.

In the context of the e-commerce moratorium, policy space also ties into the discussion on the loss of customs revenues. According to a 2020 study published by United Nations Trade and Development, the annual tariff revenue loss to developing countries alone totalled as much as USD 10 billion. That figure differs considerably from more recent estimates by the Organisation of Economic Co-operation and Development, which places the amount of foregone revenue at around USD 280 million globally. The principal reasons for these starkly contrasting numbers are the lack of a common definition of electronic transmissions and divergences regarding the scope of the e-commerce moratorium.

The lack of a common understanding on scope is also apparent in the range of different approaches to the definition of electronic transmissions in the aforementioned regional and bilateral trade agreements. The different interpretations and definitions of the scope of customs duties on electronic transmissions are, therefore, a recurring issue that countries will face, irrespective of the venue.

Regardless of the precise amount of foregone customs revenue, the policy space gained by not being bound by the WTO moratorium ought to be weighed against the downsides, including higher costs for consumers and the loss of digital market access. In this calculus, countries must also consider the added costs associated with entering or negotiating trade agreements with digital trade provisions to regain this digital market access.

Supporters of the moratorium often point to value-added taxes and general service taxes as examples of how to generate revenues on digital trade without having to implement customs duties. Such measures do indeed address policy space considerations related to governments’ wishes to finance public services through digital economic activity. Still, they cannot distinguish between local and foreign companies—certainly not as effectively as tariffs do. This suggests that the concept of policy space also includes elements of industrial policy, whereby governments wish to maintain their ability to support domestic industries faced with tough international competition.

This issue is not limited to the sphere of digital trade. In the broader context of multilateral trade, countries are increasingly turning to industrial policy to support their economies, with notable recent examples including the U.S. Inflation Reduction Act, the Creating Helpful Incentives to Produce Semiconductors Act, and the EU Green New Deal.

The continuation or expiry of the moratorium is, therefore, part of a broader debate on industrial policy taking place in the context of the WTO generally.

The continuation or expiry of the moratorium is, therefore, part of a broader debate on industrial policy taking place in the context of the WTO generally.

Where to (Re)Start: Addressing definitional issues

Agreeing on the amount of policy space that ought to be maintained for countries is not helped by the absence of a common understanding of what the rules cover. Indeed, since the rule’s inception, members have disagreed on what the moratorium does. Do electronic transmissions include only digital goods that could also be sold in physical form, such as books and movies? Do they include subscription-based services like Netflix? Do they include goods that are sold online but delivered physically? What about software and software-as-a-service-type subscriptions? What about services delivered online? Perhaps most fundamentally, there is still no official agreement on whether the moratorium covers the contents of electronic transmissions or the transmissions themselves.

As the WTO e-commerce moratorium was adopted without a common definition of “electronic transmissions,” members could reach consensus on the moratorium’s renewal without committing themselves to specific interpretations of the rule. Recent developments, including the outcome of MC13, suggest that this approach faces renewed scrutiny. Members are starting to implement customs regimes on electronic transmissions with the moratorium in effect, rightfully arguing that such policies do not violate any WTO rules. This highlights the challenges associated with the moratorium’s ambiguous language. While constructive for a time, this vague language should be revisited in light of members’ evolving priorities concerning digital trade.

The absence of a multilateral consensus on customs duties on electronic transmissions does not mean the moratorium no longer has any utility. Given the rapid growth of global e-commerce, WTO members need to have a well-grounded discussion on what rules—and what flexibilities—they want to establish to regulate, attract, and protect businesses in the digital trade sphere. The fact that countries cannot agree on everything related to the regulation of digital trade does not mean they could not agree to anything on regulating digital trade. That discussion would be easier to have under the umbrella of a continuing moratorium than in a world of rising costs and conflict caused by fragmented rules.

The WTO remains a forum that is well-suited to address these concerns, and a new set of multilateral rules on digital trade would be a worthy and achievable objective for the House of Trade.

Cedric Amon, Research Associate for Trade and Digital Affairs at the Multilateral Dialogue Geneva of the Konrad Adenauer Foundation.

Pascal Krummenacher, Officer in the Secretary-General’s Office, European Free Trade Association.